Cheesecake Factory (CAKE, Financial) has recently surpassed its $34-41 trading range, reaching a new 52-week high. This movement comes ahead of its Q3 earnings report on October 29. The recent performance of Brinker (EAT, Financial), which operates Chili's, has also drawn attention to CAKE.
- In late July, CAKE reported its third consecutive quarter of EPS growth. Revenue increased by 4.4% year-over-year to $904 million, slightly below analyst expectations but at the high end of prior guidance. Notably, CAKE's focus on reducing operating costs led to a 24% year-over-year increase in adjusted EPS to $1.09, indicating improved margins.
- Comps for the Cheesecake Factory segment turned positive in Q2, rising to +1.4% from -0.6% in Q1. CAKE noted that its comps outpaced the casual dining industry, driven by strong consumer demand for its unique dining experience.
- CAKE has raised menu prices and launched the Cheesecake Rewards loyalty program over a year ago, which has been successful. The company also operates North Italia and Other Fox Restaurant Concepts (FRC). North Italia reported a solid +2% comp in Q2, despite a challenging +8% comp from the previous year. Comps for FRC are not disclosed.
- On the cost front, CAKE improved its operating margin to 6.5% in Q2 from 5.5% a year earlier, thanks to higher menu prices offsetting commodity and labor inflation.
CAKE's breakout from its multi-month trading range is a positive indicator, despite today's pullback. Improving comps and strategic menu price increases are enhancing both comps and margins. While recent results are not extraordinary, they show promising trends. We anticipate the Q3 report to provide further insights into the company's performance.
